"I-Link Making Magic With the Web"
BY GUY BOULTON
THE SALT LAKE TRIBUNE
4/30/00
I-Link Inc. is a riddle of a technology company.
In some ways, I-Link is a start-up company, racking up $105.5 million in losses in the past four years developing the technology and network needed to become a player in an emerging market. Yet, I-Link also employs about 300 people and had sales of $32.6 million last year.
There are other contradictions.
I-Link went public years ago through the somewhat ignominious route of merging with a defunct public, or shell, corporation -- not through a hot public stock offering that heralds the arrival of a potential star. Yet the company has the backing of Winter Harbor LLC, a subsidiary of a company principally owned by Richard Marriott and his family, which holds a nearly 66 percent stake in I-Link.
I-Link, based in Draper, provides an array of telecommunications services -- call forwarding, long-distance, teleconferencing and the like. But the company provides those services using the standards and technology of the Internet.
It's arcane stuff. But in technology, fortunes are made from arcane stuff.
The technology is called Voice over IP, or Internet Protocol. So far, it has been used to offer cheap long-distance calls. But I-Link differs from nearly all of its coun- terparts, using the technology to provide complex services.
I-Link is close to launching a new service -- one that can turn a single telephone line into the equivalent of 24 lines. The service is aimed at small businesses. And I-Link, after spending tens of millions of dollars on its technology, has high hopes.
"Everything is ready for us now," says John Edwards, I-Link's chairman and chief executive.
Everything but one last piece: building a network to market its new service. I-Link has a start, but only a start.
"The distribution channel for them is going to be key," says Jeff Pulver, president of Pulver.com, a Web site that focuses on Voice over IP. "Everyone is trying to figure out where they fit into the food chain."
For now, I-Link remains a long way from being profitable. The company lost $24.7 million last year and $28 million in 1998. Given the money invested in the company, I-Link has the makings of a spectacular success or a spectacular failure.
Understanding I-Link's business doesn't require an engineering degree, but it would help.
First, some basics. The nation's telecommunications network is really two networks -- one designed for voice, the other for data. What I-Link's technology does is mesh those two networks, lowering costs and increasing the flexibility to add new services.
I-Link's software converts a telephone call or fax from the standards of the local telephone network to the standards of the Internet. In other words, the telephone call to Mom and the e-mail to your boss both move through the network the same way. Its software also can distinguish and handle voice, fax and data differently.
When an I-Link customer makes a call, it is routed to a gateway, basically the link between the local telephone system and I-Link's network. The company calls the gateway a Communications Engine -- a trademarked name that's a long way from becoming as well known as Levi's or Kleenex. The call is then moved to one of I-Link's hubs in 11 major markets where computers route the call and handle a variety of services.
Here's the advantage in all this:
First, information coded in the standards of the Internet makes better use of the capacity of the nation's long-distance network. In other words, a Web page from Yahoo! Inc. takes up less room than a call to a friend. This lowers long-distance costs.
Second, a good part of the Internet runs on relatively inexpensive off-the-shelf computers similar to personal computers. The flexibility of those computers, combined with the company's software, enable I-Link to offer a host of complex services at lower costs.
Further, I-Link's gateways can tie into all different types of communications equipment with a lot less headaches. This will enable I-Link to sell its services wholesale to other telecommunications companies.
That's I-Link's goal.
"They have a very interesting model," says Mark Winther, an analyst with International Data Corp.
The traditional telephone system is a smart network. Smart but staggeringly complex. The Internet is a dumb network. But it has the advantages of being a worldwide network based on a common standard.
I-Link's software turns a dumb network into a smart one.
Dozens of companies are providing long-distance service over the Internet. It's a competitive, low-margin business. And it's becoming even less lucrative as traditional long-distance companies lower rates.
"I-Link is trying to do a different thing," Winther says.
The company has positioned itself as a company that sells services.
Up to now, I-Link's flagship product was a service, somewhat like a souped-up version of call forwarding, that lets people have one telephone number for an office, home and cell phone, for a fax and a pager and for any of the other numbers that clutter people's fading memories.
"Your number goes wherever you are," says John Ames, I-Link's chief operating officer.
In addition, the service, called V-Link, offers the ability to hold a conference call for up to 12 people. It also has such features as call "whispering," in which callers identify themselves, enabling the person to decide whether to take the call.
I-Link has about 70,000 customers for the service, with the typical residential customer paying about $35 a month and the typical business customer paying $70 to $90 a month.
Those customers were signed up through a so-called multilevel sales force -- a network of largely part-time salespeople who recruit other salespeople in exchange for a commission on their sales. Multilevel sales forces are associated with companies that sell nutritional products -- not telecommunications services.
I-Link's sales force, in fact, became part of a subsidiary of Nu Skin Enterprises Inc., a Provo company that sells nutritional and beauty products as well as Internet service through a multilevel sales force.
The multilevel distribution system enabled I-Link to sell its service one-on-one at a time when the idea of using the Internet to make telephone calls was a new and strange concept.
The deal with Nu Skin, reached earlier this year, gives I-Link access to a much larger sales force. But I-Link also will sell its services to Nu Skin at wholesale prices. Initially, that could lower I-Link's revenue.
I-Link's focus now is on the new service, still in field tests, that turns a high-speed Internet connection into the equivalent of up to 24 telephone lines. That lets a small business simultaneously make and take calls, receive and send faxes, hold conference calls and maintain a constant Internet connection.
Winther of IDS likens the service to a "virtual" switchboard.
"The key to making a buck there is the channel they set up," Winther says. "There are a billion small businesses. How do you get to them?"
I-Link apparently has the technology, the network and the product. Now it needs people to knock on doors.
"We've got some of that distribution in place," says Edwards, I-Link's top executive. "We need more, and we are building more."
The goal is to sell the service wholesale to so-called competitive local exchange carriers, which compete with local telephone companies, and to Internet service providers. It also plans to recruit sales representatives who sell telecommunications services to small businesses.
For certain, I-Link is optimistic. The company has ordered 10,000 of the boxes needed for the service from Casio Communications. And, with nearly half of this year almost past, Edwards isn't backing off the company's goal to sign up that many customers this year.
"I don't think it will be any problem meeting our targets on that -- even a little bit," he says.
Still, I-Link is moving into a mainstream market as a nearly unknown company with a new technology. And small businesses could prove to be a tough sell.
"It's going to take time," Pulver says.
Building a market for its services also will take money. But, earlier this year, I-Link raised about $3 million when warrants and stock options were exercised. And Winter Harbor agreed this month to provide I-Link with a $15 million line of credit as well as roll over a $9.1 million loan.
The money is expected to get I-Link through this year, though the company acknowledges it will need additional money in the future.
"Capital won't be a problem," Edwards says.
Nor is the company run by starry-eyed entrepreneurs.
Edwards is a former executive vice president of strategic marketing for Novell Inc. Dror Nahumi, I-Link's president, once worked for AT&T's famed Bell Labs. David Hardy, the company's general counsel, was a senior vice president of Megahertz Corp.
And Thomas Keenan, the director who represents the Marriott family, once worked for McKinsey & Co., one of the world's premier consulting companies. David Bradford, a director, is general counsel of Novell.
These are not people to waste their time on a company without prospects.
If things come together, I-Link could look a lot less like a riddle and more like a promising communications company.
I-Link has its share of challenges. But it also has a new service and a new direction. And Ames, the COO, sees I-Link entering a new phase.
"This," he says, "will be our coming-out year."
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